Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

With Southwest Airlines Coming to Hawaii, Alaska Air and Hawaiian Airlines Strike First

Two of the top airlines in the West Coast-Hawaii market are expanding preemptively before Southwest Airlines starts flying to Hawaii.

Last fall, Southwest Airlines(NYSE:LUV) announced plans to start flying to Hawaii. At the time, the carrier still faced the somewhat daunting task of receiving FAA approval to operate long overwater flights. However, it stated that ticket sales would begin in 2018, with flights likely to begin in late 2018 or early 2019.

Midway through 2018, Southwest Airlines still hasn't published any schedules for flights to Hawaii. Nevertheless, it has released a steady trickle of information about its plans over the past six months. This included an announcement in early May that it will initially fly to Hawaii from four cities in California: Oakland, Sacramento, San Diego, and San Jose.

Hawaiian Holdings(NASDAQ:HA) and Alaska Air(NYSE:ALK) are currently the only two airlines flying nonstop to Hawaii from those cities. Both carriers are fighting back against Southwest's looming arrival in the market by expanding preemptively.

Hawaiian Airlines continues its West Coast expansion

In late 2017, Hawaiian Airlines received its first of 18 Airbus A321neo aircraft. For the past several years, Hawaiian's management team has been eager to add the 189-seat A321neo. It is significantly smaller and more fuel efficient than the widebody aircraft that Hawaiian has historically used for its West Coast-Hawaii flights, enabling the carrier to fly less-busy routes.

Hawaiian Airlines had already unveiled several new routes to be flown with the A321neo prior to Southwest's Hawaii announcement. It has continued to announce new routes since then.

Hawaiian Airlines is steadily announcing new routes to be flown with its A321neos. Image source: Hawaiian Airlines.

Last December -- before Southwest Airlines had revealed which cities would be its gateways for Hawaii flights -- Hawaiian Airlines introduced a new route connecting San Diego to Maui. At the same time, it also announced a daily seasonal summer flight between Oakland and Kona, although delays in its aircraft delivery schedule forced it to cancel that route for 2018.

Unfazed by Southwest's expansion plans, Hawaiian Airlines announced last week that it will begin a new daily route between Sacramento and Maui in April 2019. This will complement its existing daily Sacramento-Honolulu route.

Alaska Airlines isn't backing down, either

Hawaiian Airlines' decision to add a second route from Sacramento to Hawaii came a little more than a week after Alaska Airlines announced that it will add a new Sacramento-Hawaii route later this year. Alaska already offers daily flights between Sacramento and Maui, and it will begin flying from Sacramento to Kona three times a week in late December.

In theory, Alaska Airlines could have chosen to reallocate some Hawaii flying to other markets in response to Southwest's entry into the West Coast-Hawaii market. However, Alaska Air CEO Brad Tilden has indicated that the carrier will fight to maintain its market share. Indeed, Hawaii flights have become an important part of Alaska's business, and the carrier claims to operate more West Coast-Hawaii flights than any other airline.

Avoiding a capacity vacuum

Based on their new route announcements since last December, Hawaiian Airlines and Alaska Airlines are not flooding the West Coast-Hawaii market with capacity. Instead, they are putting capacity into underserved markets, rather than leaving a vacuum that Southwest Airlines would gladly fill.

For example, Hawaiian Airlines and Alaska Airlines each operate one daily Sacramento-Hawaii flight today, serving Honolulu and Maui, respectively. Through the first five months of 2018, they offered a combined 63,118 seats to Hawaii from Sacramento. By contrast, airlines offered nearly three times as many seats to Hawaii from Portland, Oregon, which has a slightly larger metro area population.

Meanwhile, Portland had about 50% more seats to Hawaii in the first five months of 2018 than San Diego, even though its metro area population is 30% lower.

Thus. some of Southwest Airlines' gateway cities for Hawaii service seem to have fewer flights to Hawaii than they could support. Preemptive capacity additions in those markets won't stop Southwest from introducing its own competing flights over the next year or two. However, by better serving the existing demand, Hawaiian Airlines and Alaska Airlines may be able to protect their West Coast-Hawaii franchises by pushing Southwest Airlines to start smaller in Hawaii.

Author

Adam Levine-Weinberg is a senior Industrials/Consumer Goods specialist with The Motley Fool. He is an avid stock-market watcher and a value investor at heart. He primarily covers airline, auto, retail, and tech stocks. Follow him on Twitter for the latest news and commentary on the airline industry! Follow @AdamLLW